China Unicom (Hong Kong) Limited (762) Earnings Call Transcript & Summary

Yes. Thank you. Three question from the investor. The first one is regarding the ARPU. He has noticed about the company mobile ARPU has been increasing, and he wish to know about the 4G subscriber migrating -- upgrading to 5G, what's the accretion level? And he also love to have the outlook about the 2021 ARPU, including 5G ARPU. And second question from him, he noticed about -- as a colleague of our company, he has make -- put forward a proposal in the 2 sections. In regarding the 700 megahertz spectrum, and proposing about the vehicle share of an IT network on this spectrum, and he wish to have more colors about this. Third question from him, he has high regard on Chairman, and he has known Chairman for a long, long time, and he has known -- have seen the great result achieved by Chairman from China Mobile to China Telecom, and now to China Unicom. He love to have the vision from Chairman about 10 years later -- or what would be the biggest challenges to the industry?

[Foreign Language]

Yes. Chairman would like to say that the 5G ARPU for the 5G user is roughly about CNY 70, the 5G user ARPU. And he expect this year, the 5G ARPU, given that we are expanding the scale, it will come down, the 5G ARPU. However, he expect the 4G -- our existing 4G user upgrading to 5G, we will still be able to maintain about 10% accretion on the ARPU.

[Foreign Language]

Yes. And so regarding the 700 megahertz spectrum usage, he -- Chairman would propose -- would love to advocate about one single network to cover the rural area and in particular, the remote area and also the highway and railway and to be co-shared by 4 operators on this one single network. He believe this will be value-enhancing to all the 4 operators.

[Foreign Language]

Yes. Chairman would like to share his reason about the outlook of the industry. First of all, he would like to say the opportunity it must come from innovation. And in particular, the human-based connection services will have come to a ceiling. So there must be innovation. Since the time when he worked at China Telecom, he has proposed the idea about the telecom, i.e, breaking the walls of the telecom and trying to expand into some other nontelecom business. For example, he mentioned about the cloud business, Big Data, IoT, artificial intelligence and also this network security.

[Foreign Language]

Yes. And also Chairman would like to emphasize the company -- or telecom company must improve or enhance its smart operation and digital transformation so as to improve the operating efficiency and deliver better services.

[Operator Instructions] Our next question is coming from Bing Duan from Nomura.

[Foreign Language]

Thank you, Bing. And Bing, he, first of all, he congratulated the company on achieving the double-digit profit increases. And he has three questions. The first one is regarding the mobile business. He noticed about this mobile subscriber of the company last year has decreased net loss, and he wish to know whether it's being mainly because of the mobile number portability? What's the impact? And the second question from him is on the fixed-line broadband businesses. He notice that there is more -- there was orderly competition last year on the broadband business. As a result, our subscriber, broadband subscriber and also the broadband ARPU has increased. He love to know about the trend for the coming year. And also he would love to see any value-add services on this aspect is still in good demand and increasing. And the third question from him, he wish to have the company to share about the outlook about the 5G 2B businesses, which area the company will focus on -- or which part will be very, very attractive in the coming year.

[Foreign Language]

Yes. And Chairman would like to address the first question, the mobile subscriber net loss. And he love to point out the reason why, mainly two. The first one is about -- he has noticed about the adverse competition in the mobile market, and he would like to say the company will allocate about getting back to order and rational competition, in particular, on the pricing. As a result, we need to take the proactive role to set a good example and so we -- it comes down to competition. And on that basis, the company have mainly trying not to compete for some low-end subscriber. As a result, we control our marketing expenses. The overall marketing and selling expenses increased by 9% last year while the overall ARPU, mobile ARPU increased by 4%. And this is the end result we have successfully achieved. Regarding the impact from mobile number profitability, Chairman would like to say he see only a not material impact on our overall operation at all.

[Foreign Language]

Yes. And Chairman would like to say he expect the fixed-line broadband subscriber increases and also the fixed-line broadband revenue increases will be quite similar to last year. This year increase will be similar to last year. And of course, regarding the VAS, it's mainly about our Wo Family, Smart Family businesses, including about the telephone, fixed-line and also surveillance camera, TV and also the WiFi deployment.

[Foreign Language]

Yes. And regarding the 2B business, Chairman would like to say, from functionality, he expect the cloud business, Big Data, IoT, artificial intelligence and network security. This will be in strong demand. And while from this -- from the industry perspectives -- or sector perspective, he expect the smart city and also the smart traffic and also the industrial application, environmental protection will be some good industry we'll be trying to focus on. But the company will be selective and trying to implement more deeply. Thank you, Bing. And Jason, I think we need to have -- spend some time for the management to answer some online key questions, again. [Foreign Language] And there are 2 questions on the online which are of common interest. The first one, when will the company 5G business be profitable? The second question is the government -- what we [ probably ] request them that every tariff for small and medium enterprise broadband identity lines will be reduced by 10% this year. What will be the impact? And what measure will the company take? [Foreign Language]

[Foreign Language]

Yes. And Chairman would like to say regarding the profitability of the 5G business, first of all, he would like to say at this moment, it is hard to calculate because right now, the 5G business will be integrated with our existing business. And also, it will be leveraging the existing resource of the existing businesses. So it's hard to have some segment accounting for this. However, he will -- he expect, given the initial phase of the 5G development -- so he expect the 5G business, by its own, should be loss-making. And -- however, he will try to ask the finance department to try to see any way to try to calculate about the profitability of 5G business in future.

[Foreign Language]

Yes. And Chairman would like to say he noticed about the government report has request about the SME to reduce the tariff business in addition to the 6 -- past 6 years, this is the 7 years already. And the SME, the broadband tariff and also the private [ item ] will come down by 10% this year. And of course, it will have some impact on the company. And Chairman would like to say, he will try to work hard and thereby to try to mitigate about the impact.

[Foreign Language]

Yes. And Chairman would like to point out that last year, the company has been request to reduce the SME broadband tariff by 15%, 1-5 percent, and the company had been able to offset the impact about this tariff increase by increasing the volume of speed. As a result, net-net is stable. And of course, the company need to increase a bit on the cost for providing these services.

[Foreign Language]

Yes. And Chairman would like to also point out that after 7 years of tariff reduction has been upgrade, in fact, he expect and he realize that the issue about the tariff of basic telecom business communication is not a concern to the consumer in general. Instead, he understand the customer or the consumer will be more concerned or focused on the speed improvement and also the quality improvement. In fact, he expect this is the responsibility of the telecom operator to try and to aim at enhancing the speed, enhancing the quality of the services in the coming future. Thank you. And we shall now move back to answer the question from investor on the telephone lines. [Foreign Language] Jason, could you please pass on the next question from investor?

[Operator Instructions] Your next question is coming from [ Jan Long Wang ] from [ Kotai Jinan ].

[Foreign Language]

Thank you. Thank you, [ Jan Long ]. Three question about the investor. The first one is regarding the network structured plan of the company. He noticed that -- or he expect that the 4G network will be response for the wide coverage. And while 2G, 3G network will be -- to be strong in some time and 5G mainly be quite city-focused on deep coverage. And he wish to know about the trend of the company or the pace of the company plan to adopt. And the second question from him is regarding the fixed-line broadband. He noticed the company achieved more than 2 million net add last year and also the revenue increased by more than 2%. And he wish to know the goal of the company about the market positioning in this market. And his third question from him is regarding the 5G+ industry vertical business or ABCDE. He has noticed about some business application mentioned by the company and also the private networks, and he wish to have more color from the management about this type of business development plan.

[Foreign Language]

Yes. And Chairman fully agreed with the idea of the investor, and he expect in the coming future, we will be predominantly relying on the 4G plus 5G network. The 5G network will be mainly to serve the high-traffic area or the city area, which require a lot of high speed and also high capacity. While the 4G network will be responsible for serving some low-traffic areas for the wide coverage and also including the rural area and also to provide some roaming services. While the 2G and 3G network will be withdrawn over the time, for 2G network, basically, the plan is to try to withdraw substantially basically this year. 3G network will take some more time.

[Foreign Language]

[Interpreted] Yes. And regarding the development plan for the fixed-line broadband business this year, the company will try to for those areas which are surface capacity, we would like to make sure that they will increase or improve their utilization rate and also the business integration rate, i.e., combining the -- integrating the service of fixed-line broadband with the mobile.

[Foreign Language]

[Interpreted] Yes. And we will also select some areas, not too many, we got, based on the Big Data analytics and try to add some capacity to those assets.

[Foreign Language]

[Interpreted] Yes. And regarding the development of the 5G plus industry vertical business segment, the company will try to, first of all, focus on enhancing the capability and also enhancing the cooperation. As a telco, the company will be stronger on the IaaS, infrastructure-as-a-service or the PaaS, the platform-as-a-service. However, on the SaaS, software-as-a-service, we need to cooperate more with the strong partner so that we deliver some good service as overall to the customer.

[Operator Instructions] Our next question is coming from Edison Lee from Jefferies.

[Foreign Language]

Yes. Thank you. One question from him. Maybe on the 5G. He has noticed about the news yesterday about the co-build by China Broadcasting Network and China Mobile for 400,000 5G base stations based on the 700-megahertz spectrum. And he wish to know what is the chance of our company to participate in this 700-megahertz spectrum network co-build? And also what's the time line?

[Foreign Language]

Yes. And Chairman would like say that -- [Foreign Language]. The Chairman would like to point out that different spectrum bandwidth will have different features and have different advantages in different scenario. For example, Chairman would like to point out that in the city area, the high bandwidth of 3.5 gigahertz and also the 2.1 gigahertz band will, in fact, it has -- its advantageous, given the wide spectrum -- or bandwidth spectrum it has. And compared with 700 megahertz in the city area, it might not have good advantages. However, in the rural area, given its strong [ provocation ], it has a wide coverage advantages. And Chairman fully agree with the regulatory authority idea about co-build and -- or co-share about the 700 megahertz in the rural area.

[Foreign Language]

Yes. Thank you, Chairman. Chairman would like to add on that. For the cooperation format, in fact, we could -- we are very flexible. It could be co-built by all 4 operators and co-share by 4 operator. Or it could be built by one single operator, and then it has the roaming, and then the other operator will have some co-used settlement. That is another method. There are various ways to tackle this. And in fact, he loves to point out that the co-sharing one single network in the remote area will be beneficial to all the 4 operators because given that in this rural or remote area, the traffic will be -- will not be high. As a result, if you can share the one single network, the cost can be amortized or taken up by 4 operators.

[Foreign Language]

[Foreign Language]

Yes. Chairman would like to answer the supplementary question. And he understand the regulator is keen to push forward the idea. And -- however, some operators may have some thinking or hesitation. And however, he himself, Chairman, is optimistic or having -- look forward to a bright prospect on that.

[Operator Instructions] Our next question is coming from [ Hai Ching Tang ] from [ Tien Phong Securities ] Securities.

[Foreign Language]

Yes. Thank you. Three questions from the investor. The first one is he love to inquire about the expectation of the overall landscape of operation in China. He had point out that in the past, the infrastructure construction burden has been put on the telecom operator while the bonus of that infrastructure construction has been taken up by other windows, including the telecommunications -- the Internet operators. And the second question is on the mix ownership reform. You point out that the Yunnan province -- provincial's branch, the reform has been in progress for a few years, and he love to know about the latest progress. Last question from him is he noticed about the selling expenses of the company has been decreasing by tens of billion every year in the past few years. He'd love to see the trend in the coming future.

[Foreign Language]

Yes. And Chairman would like to say, under the market economy principle, we have reference to some western economies. For example, in the U.S., they have been the first one country to try to point out or applicate network neutrality. And however, nowadays, they have abolished this network neutrality principle. And so we love to see in the coming future, time will come and prove about the validity of some practices.

[Foreign Language]

Yes. And Chairman would like to point out that the Yunnan provincial branch mix ownership reform for the past year is very positive. And in particular, in the past 3 years, the company did not invest, make any CapEx investment in the Yunnan provinces. So it helps to reduce the overall CapEx of the whole company, while at the same time, the profit has improved in the Yunnan provincial branches.

[Foreign Language]

Yes. And Chairman would like to say, over the time, he have seen some changes. And for example, when we have successfully implemented the 5G co-build co-share, we is now coming to the time we also expand the co-build co-share to the 4G network. As a result, we are considering some policy change on this aspect. Also, the financial strength of the company has improved significantly in the past few years, so it will also invoke some changes in the policy we are contemplating.

[Foreign Language]

Yes. And what Chairman mentioned about the changes to be contemplate, it will not affect the continued operation of the mixed ownership reform of the Yunnan province and also the [ Guangxi ] provincial branch. What he mentioned about the change in content base is to discuss with the partners and to see how we could further optimize about this reform.

[Foreign Language]

Yes. And the selling expenses last year have decreased by 9% and mainly benefiting from 2 aspect. First one, the company strengthened about the online/offline marketing and also restricting control about the physical outlets. And the second aspect is the company the control about the low-end subscriber development or acquisition last year.

[Foreign Language]

Yes. And however, Chairman would like to say the company will not aim for continuous reduction in the selling expenses because you think the selling expense should be kept at a very reasonable level to ensure it will help to drive the business development. So he needs to have a good balance on that.

[Foreign Language]

Yes. Follow up question from the investor is regarding tower usage expenses. He has noticed about the 7.2% increase last year-over-year. And however, he has noticed about Chairman has mentioned about the progressive withdraw of the 2G and 3G network. He expect it will benefit about -- to bring down the tower expenses in the coming year, and he'd love to have the idea from the company or the management. And also about the pricing terms with the tower company, would there be any change?

[Foreign Language]

Yes. Chairman would like to say the tower expenses increases, he expect, because right now, although we are trying to withdraw some 2G network. However, it is on a 900-megahertz spectrum compared with the 5G new construction base station, which is on a higher bandwidth of 3.5. As a result, it -- the 3.5 require more densely constructed base stations. As a result, net-net, he expect there should be some increases.

[Foreign Language]

Yes. And Chairman would like to say, of course, our free Chinese telco would love to have a negotiation with the tower company and still subject to negotiation. However, he expect in the coming year, the tower expense increases the pace or the increased weight will be less than last year. Okay. Thank you. Jason, I think it's time. We need to wrap up the meeting. Thanks, again, for attending the conference. Should you have any more questions, please feel free to send it to our Investor Relations department. [Foreign Language] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]